Congress Boosting DOD Energy Security; VC-Firms Delivering Solutions

Investing at the intersection of Defense and Commercial markets involves, in part, keeping tabs on policy initiatives gaining momentum in Congress. These initiatives offer new approaches to challenges faced by the Department of Defense (DOD). With respect to power and energy, DOD’s most recent challenges revolve around annual energy costs and strategic energy security concerns, including:

Increased fuel costs driven by rising oil prices;
Higher fuel costs and fuel logistics costs due to increased usage in high risk areas like Iraq and Afghanistan;
Increased concerns over the DOD’s (and the nation’s) reliance on foreign oil;
Increased concerns over the DOD’s reliance on electricity from the national grid, which is potentially vulnerable to cyber or terror attacks;
Heightened awareness over the DOD’s (and the nation’s) greenhouse gas footprint’s contribution to climate change.

Senator Mark Udall and the office of Congresswoman Gabrielle Giffords are spearheading the latest batch of policy initiatives to address these challenges through legislation entitled “The Department of Defense Energy Security Act”. The act recommends variety of studies, pilot projects, funding initiatives and contracting authorities. Not all of the recommendations will become law, but according to Senator Udall, five elements of the bill are expected to be included in the National Defense Authorization Act of 2012. This means there is a good chance they will pass Congress and earn the President’s signature. These elements focus mainly upon facility energy security, greenhouse gas emissions and electricity costs. Specifically, they do the following:

Authorizes the Energy Conservation Investment Program (ECIP) (i.e., a program that invests in energy saving projects at military facilities);
Requires installation energy metering data to be captured and tracked;
Sets interim renewable electricity standards (RES) goals; 
Current DOD goals for RES leap from 7.5% in 2012 to 25% by 2025.
The provision adds interim goals of 12% by 2016, 16% by 2019 and 20% by 2022.
Identifies energy efficient products and technologies for use in DOD facilities, including direct use solar technology;
Helps enhance cyber security on military installations to minimize risk of disruptions from cyber attacks on electrical infrastructure.

If these policy initiatives become law, and Congress appropriates funds for execution, DOD will have the opportunity to purchase innovative new products, in part, from small technology companies with VC-backing. Some of these companies include:

Energy Conservation: Redwood Systems and Encelium Technologies install advanced lighting control systems to reduce facility lighting loads up to 75%.
Energy Monitoring and Data Capture: Energy IQ provides tools to capture building energy usage data, and use that data to plan capital expenditures, reduce inefficiencies, and report to executives.
Renewable Energy: Petra Solar installs distributed solar systems that mounted to utility poles and building rooftops, and can dump power directly into the grid. The design helps the DOD install megawatts of solar power generation without the need for large parcels of land, time intensive environmental impact studies, or installation of new distribution lines.

Great companies and new initiatives do not guarantee adoption, and critics of Congressional energy initiatives that target the DOD have questioned the ability of DOD to turn lofty goals—such as the aforementioned renewable energy standards--into reality. Retired Navy Admiral John Nathman observes: “The toughest obstacle for the Pentagon is that, despite its enormous budget and clout as the largest U.S. government agency, its influence in the energy market is negligible, making up just over 1 percent of the nation’s fuel demand.” In order to achieve aggressive goals, some believe the United States government would have to adopt an overarching policy that, among other initiatives, creates incentives to buy less oil and electricity and invest in alternative energy sources.

Those calling for this broader National Energy Strategy—one that helps the DOD better address its energy challenges—might just be shaping the next round of Congressional initiatives.

Referenced Articles:

The Giffords-Udall Department of Defense Energy Security Act:

http://giffords.house.gov/energy-security-act.shtml

Udall Provisions to Help Military Save Money, Lives with Renewable Energy Included in Major Defense Bill:

http://markudall.senate.gov/?p=press_release&id=1135

Beltway Insiders Cast Doubts on Defense Energy Strategy:

http://www.nationaldefensemagazine.org/blog/Lists/Posts/Post.aspx?ID=469